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Cabinet unveils three options to guarantee MSP

The policies envisage, for the first time, the role of private firms in acting as a buyer on behalf of the government on a trial basis.

Updated: Sep 13, 2018 00:16:47

By Zia Haq

The government sets MSPs for 24 crops that are meant to act as a profitable, base price. However, over the past two years, market prices have trended well below these benchmark thresholds in many crops — the root cause of farm distress. (AP File Photo)

The Cabinet on Wednesday unveiled three policy options to ensure farmers get federally determined minimum support prices (MSPs) for their produce, a move critical to the government’s efforts to check rural angst due to poor agricultural returns, ahead of crucial state elections later this year and a general election next year.

The schemes are essentially designed to effectively intervene in agricultural markets by way of procurement, which refers to the government’s purchase of commodities at prices profitable to farmers in situations when markets fail them.

The policies also envisage, for the first time, the role of private firms in acting as a buyer on behalf of the government on a trial basis. The government has branded the schemes “PM Annadata Aay Sangrakshan Abhiyan – PM Aasha” (PM’s food producers’ income protection campaign).

The government has faced a challenging situation brought on by poor prices of items such as pulses, soya, milk and oilseeds, arising from bumper produce and the collapse of food prices around the world, hurting farmers in many states. Ahead of crucial elections in Chhattisgarh, Rajasthan and MP slated for November-December, the schemes announced Wednesday are aimed at reinforcing the government’s assurance, made in the 2018-19 Budget, that it would guarantee farmers profitable prices anchored in MSPs.

The government sets MSPs for 24 crops that are meant to act as a profitable, base price. However, over the past two years, market prices have trended well below these benchmark thresholds in many crops — the root cause of farm distress. In July, the government sharply hiked MSPs for 14 crops, setting each of these at a minimum of 1.5 times the cost of cultivation, the highest increase under the present government’s tenure.

The first policy option announced Wednesday is the so-called price support scheme, an ongoing programme, which will now receive more funding. Under it, the government procures farm produce directly from farmers at MSP rates when market prices dip below MSP. The second option is the so-called price deficiency scheme, which MP experimented with as the “Bhavantar” scheme. Now this will be replicated nationally. Under this, if the selling price of a farm produce goes below the “modal” price — a kind of an average price — then farmers are paid the difference between MSP and the actual price, subject to a ceiling. The third proposal, called the private procurement stockist scheme, is to deploy private firms to buy farm produce at MSP, store them and sell them on behalf of the government when markets crash. The government will pay the firms a service charge of up to 15% of the MSP for a specified crop. The rules and modalities of this scheme have yet to be made public.

According to official data, Nafed, the central agency tasked with procuring directly from farmers at MSP, purchased 6.34 million tonnes of pulses and oilseeds from about 3.5 million farmers till June. To undertake these operations, the agency needs bank guarantees, essentially lines of credit from public sector banks. The agriculture minister said for 2018-19, the government has guaranteed ₹16,500 crore, taking up the total amount in the past four years to about ₹45,550 crore. How much each of the three schemes will receive in funding is yet to be decided.

“It is a step in the right direction. But the government must manage the risks... the Bhavantar scheme has been found to be manipulated by traders to suppress prices artificially. So, district collectors have to be robust in cracking down on potential cartelization,” said economist T Haque, former chairman of the Commission for Agriculture Costs and Prices.